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Chapter 20: Q. 12 (page 493)

How does comparative advantage lead to gains from trade?

Short Answer

Expert verified

Comparative advantage leads to gains from trade when the country specializes in the product which it has a more comparative advantage.

Step by step solution

01

Step 1. Meaning of Comparative Advantage.

A country has a comparative advantage when it can produce a good at a lower opportunity cost than others.

02

Step 2. Reason for gains from trade.

Comparative advantage leads to gains from trade when the country specializes in the product which it has a more comparative advantage. By doing so, the production increases which leads to an increase in revenue.

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Most popular questions from this chapter

Look at Table 20.9. Is there a range of trades for

which there will be no gains?

Brazil can produce 100pounds of beef or 10autos. In contrast, the United States can produce 40pounds of beef or 30autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef in Brazil? What is the opportunity cost of producing one pound of beef in the United States?

Why does the United States not have an absolute advantage in coffee?

Why might intra-industry trade seem surprising

from the point of view of comparative advantage?

Why might a low-income country put up barriers

to trade, such as tariffs on imports?
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